Massachusetts Man Guilty of Major Mortgage Fraud

Inside Subprime: Nov 6, 2018

By Lindsay Frankel

A Massachusetts man has copped to a major mortgage fraud conspiracy that spanned almost a decade and led to millions in losses from banks and financial institutions.

In late October, Joseph Bates, 38, pleaded guilty to several counts of conspiracy, wire fraud and bank fraud. Those federal fraud charges trace back to more than 20 phony mortgage transactions causing $4.3 million in losses for banks and lenders issuing those mortgages. And it was a long scam — from 2006 to 2015, according to federal officials — mainly based in Salem, Massachusetts. Prosecutors said that more than a dozen banks and mortgage lenders were wrapped up in the scheme, and those institutions placed almost $10 million into the phony mortgages.

Feds said Bates and other associates used false information, such as made-up income, employment and assets, on behalf of recruited buyers to receive homeowner loans. Those homes were mostly multi-family buildings, with two or four units, that were turned into condominiums. That’s when other buyers were recruited to buy those individual condos, which were also backed with falsely obtained mortgage loans.

Bates and his cronies created shell companies where those buyers “worked,” which could be used as employers on applications. (One co-conspirator, a real estate developer, was already charged with conspiracy, fraud and other charges in September, and another associate, an accountant, was charged with fraud and filing bad tax returns.) 

Federal officials said the “employees” made little to no income from those positions at the shell companies. In addition, the loan applications exaggerated how much money those phony employees and borrowers really made. One Salem News article said that the men would use their own money to lie to the banks that down payments on the homes were being made.

The fraudulent scheme also involved submitting false tax returns on behalf of those buyers, as well as lying about borrowers’ intent to live in the homes, a condition of many mortgage loans.

Ultimately, many of the buyers defaulted on the mortgage loans because they didn’t have the money to pay them. In turn, that meant those homes were foreclosed on and the banks and lenders lost millions.

The Wakefield, Massachusetts-native Bates now faces potential years of prison time and more than a million dollars in fines. A sentencing date hasn’t been set yet.

This comes as new data shows mortgage fraud risk rose 12 percent this year, with the biggest jump seen in income reporting, one of the charges leveled against Bates and his co-conspirators. According to CNBC, an estimated 1 in every 109 applications shows signs of fraudulent information.

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